The National Budget Speech to be delivered by Minister Pravin Gordhan on 22 February is one of the most anticipated events on the economic calendar this year. Against the backdrop of sluggish economic growth, threats of economic downgrades and increasing student protests demanding free education, employment creation and infrastructure investment are some of the most obvious discussion points we’d like to hear about.
However, there are other important financial issues that consumers need to be aware of before the minister delivers his speech this week. According to Tendani Mantshimuli, economist at Liberty, everyone wants to budget when revenue is greater than expenditure but when revenue is low, we’re in for a tough time.
Mantshimuli says, “South Africans should expect a tight budget this year. Gross Domestic Product (GDP) growth for 2016 is expected to be around 0.5%. That doesn’t leave us much to work with. Technically, we’re not in a recession, but incomes are very low and the demands on the budget have expanded.”
South African debt levels require robust action
South Africans should be concerned with the Finance Minister’s plans to reduce the budget deficit. We need to be looking at the minister’s plans to implement a sustainable roadmap for economic growth. “These issues are important to rating agencies. We need to be consistent in our approach to balance our budget. We hope the minister will provide some detail on how the debt will be reduced and how economic growth going forward will be supported,” says Mantshimuli.
In the fourth quarter of 2016, unemployment in South Africa was still sitting at 26.5%. While it is not the mandate of the South African Government to create jobs, its responsibility is to stimulate the economy, and create conditions where businesses in the country can create more jobs across all industries and sectors.
In the current environment of economic uncertainty, there is a need to cut red tape for new entrants into the business sector; this is especially true for SMMEs which should be encouraged as they are highly labour intensive and can help alleviate the unemployment problem. Labour laws should enable both business and labour to contribute more efficiently to growing the economy. Also, a more accommodative tax regime would benefit SMMEs but under these circumstances where government revenue has been curtailed by poor economic growth this will be a challenge.
Mantshimuli explains that while taxes for corporate institutions are still high, we should not expect revenues collected from corporates to be exceptional. “Lower commodity prices, imports and exports coupled by geographical problems like the continuing drought have damped profits for larger corporations. This means that with lower profits comes lower tax revenues.”
Personal budgets and the impending sugar tax
An interesting point this year is the proposed sugar tax. This might push up food inflation and impact on household budgets as the cost of sugar laden products will increase. Mantshimuli says, “It is a good idea to implement taxes that will encourage South Africans to live a healthier lifestyle. I am not convinced that this will work though, especially when you look at the impact of sin taxes. Just because you make a product more expensive by imposing taxes, doesn’t mean that it will change consumer behaviour.”
Free education? Not likely
Last year the focus on political and civil unrest came from South African universities. Free education in higher institutions of learning would be ideal but not entirely possible. The president spoke to higher education fees programme in the State of The Nation address. He importantly stated that while free education is important there are other priorities that need to be focused on such as, healthcare, poverty alleviation and the creation of employment. With limited resources and expanded demands, government is going to have to reprioritise spending to meet more urgent demands.
“I don’t expect the minister to say that free education will become a reality this year; there will be some indication on how to make this more affordable for more South Africans. However, I do hope to see an emphasis on basic education and increased allocations to ensure that all South Africans have access to a better level of basic education specifically related to science and mathematics,” adds Mantshimuli.